As recently pointed out on this blog, TIF as a tool, needs tweaking, but so do property taxes. Iowa has a tax structure that is not seen as fair to either residential property owners or business interests, therefore neither group is happy. To this end, the Iowa legislature ran in circles trying to please commercial property owners wishes, but, at the same time, not biting the hand that votes for them--you and me. Hence, they did nothing--which, let me express, is good. Better to do nothing than come up with another "rob Peter to pay Paul" scenario.
This tug of war surrounding property tax creates some interesting problems for us like the issue I care most about, affordable housing. If I am a developer and I can build either apartments where I pay taxes at 100% of the property value or build "apartments" and call them condominiums, for which I will pay the rollback % of residential property value which in Johnson County is roughly 46% of value. Now granted, at the end of the day, it is either the renter or the condo owner who pays the taxes, but it does affect the cost of doing business for the period of time I have no tenants or owners--and, if I'm building apartments, it further impacts the amount of rent I will charge--which can end up affecting the rate of occupancy.
On the other hand, if I am a residential property owner, if my taxes were to more than double--to make everyone pay at the 100% level, many people would be forced to sell their homes. So you can see where politicians are not going to do that.
This is where the TIF (Tax incremental financing) comes in. Cities need their economic bases to grow, in part because they know that they have limited local control over their tax revenues (thanks to State government). However, the deal with the devil is that cities have to offer tax abatement to attract business, because the theory goes, if we don't, the next town will. So the cities create a local "rollback" for new or expanding businesses in the form of tax abatement for a period of time. Peter Fisher has a great article in the Press-Citizen today that addresses this. Also see this document that explains TIF from the organization I chair, FAIR.
On a local level, we expect a lot of our local governments in terms of public safety, but we also demand a lot of things that cost a lot to furnish, and we value as necessary. Things like parks and senior centers, neighborhood services, city planning, leaf pick-up--all have significant costs. But the thing that costs a ton of cash is infrastructure--roads, sewers, sidewalks, traffic lights--no one is offering a rollback to the city or county to provide these things.
The cost of doing business for communities is negatively elastic, that is to say, the price to buy and offer services increases over time and above the general inflation rate (due to personnel costs and material costs). This is why we are hearing the call for another penny sales tax, on top of what the school district recently had approved by voters. Cities like Iowa City are trying to keep up and not add a direct property tax. They are considering to do what the state is struggling no to--to get revenue any way they can that won't cause voters to hate 'em.
Unfortunately for local governments like ours, the politicians are paid as part-timers and not particularly gifted at making a sales tax pitch. Besides that, it is not non-controversial to hike the sales tax, as it affects certain people (the elderly, fixed and lower income people) more dramatically than others. Still, as Tip O'Neill loved to say, all politics are local politics.
What is needed is a set of priorities where taxation is concerned. No taxpayer should be unfairly burdened, nor should any taxpayer expect special dispensation at the expense of other sectors. This means reevaluating the way we do business as a state and as localities and developing coherent policy that allows localities more flexibility in structuring taxes and debt.
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